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FRAUD IN BANKING SECTOR: TYPES, CAUSES, PREVENTIVE AND CONTROL MEASURES. (A CASE STUDY OF SELECTED BANKS).

10,000 3,000

Topic Description

CHAPTER ONE

1.0     INTRODUCTION

This project study is undertaken to critically evaluate frauds in Banking sector; types, causes Preventive and control measures. A case study of some selected banks in Enugu Metropolis. United Bank for Africa (UBA), First Bank of Nigeria, Union Bank Plc, Mainstreet Bank, will be undertaken.

1.1. BACKGROUD OF STUDY

Since the Research study is on fraud in banking sector, types, causes, preventive and control measures it will be worthwhile to start with bank and its origin in Nigeria, before delving into the subject matter proper.

WHAT IS BANK?

Lord Paget (1966:12) defined a bank or banker as a “corporation or person (or group of persons) who accept money on current accounts, pay cheques drawn upon such accounts on demand and collect cheques for customers, that if such minimum services are afforded to all and sundry without restriction of any kind. The business is banking business, whether or not other business is under-taken at the same time” R.S Sayer (1979:1) in his own words defined banks as institutions whose debt usually referred to as bank deposits are commonly accepted in final settlement of other debts.

From the above, it could be inferred that before an institution is regarded as a bank, the principal aspect of its business must consists of receiving money for the credit of a current account, which the depositor could withdraw on demand by cheque.

In modern banking where banks have become financial supermarkets providing a wide variety of services, the above definition will certainly not be enough. Fortunately, this opinion appears to have received official support in Nigeria. In the Nigerian Banking Act of 1969, the term bank was interpreted as meaning “any person who carries on banking business”. Bank Amendment Decree No 3 of 1970 stated that bank business means “the business of receiving monies from outside sources as deposits irrespective of the payment of interest and the granting of money loans and acceptance of credits or the purchase of bills and cheques or the purchase and sale of securities for accounts of others or the incurring of obligation to acquire claims in respect of loans prior to their maturity or the assumption of guarantees and other transactions as the commissioner may, on the recommendation of the CBN, by order published in the Federal Gazette designate as banking business”.

ORIGIN OF BANKING INSTITUTION IN NIGERIA

Commercial banking business started in Nigeria with the establishment of the African banking corporation in 1892 (The predecessor of the present day First Bank of Nigeria Plc) Nwankwo (1991:13). The emergence of the pioneer bank in Nigeria sparked off the establishment of others. Fraud is an age-long problem, it is a global phenomenon. It is not unique to the banking industry or peculiar to Nigeria. The Nigerian society, particularly since after the civil war is bedeviled with the desire to get rich quick. Everybody wants to make it within the shortest possible time. Because the banks deals with money and since the ultimate ambition of the ‘want to get rich quickly” is to acquire money, the banks have become persistence targets for fraudsters. From the above one would ask what then is fraud.

WHAT THEN IS FRAUD?

The United Kingdom (UK) Financial service Act 1986 defined fraud as an irregularity involving the use of criminal deception to obtain for instance an unjust or illegal advantage.

In a similar vein, SAFE Associates ltd (2002) in its lecture material defined fraud as an international misrepresentation of financial statements/records by one or more individuals among management, employee or third party. It involves the use of criminal deception to obtain an unjust or illegal advantage.

The oxford Advance Learners Dictionary of current English defined fraud as a criminal deception. In legal terms, fraud has been defined as the act of depriving a person dishonestly of something to which he is or would or might be entitled but for the perpetration of fraud.

In its lexical meaning, fraud is an act or course of deception or trickery deliberately practiced in order to gain some advantage dishonestly.

From the above, the researcher sees fraud as all surprise, tricks, cunning, deception or other unfair means willfully used to cheat any person or group of persons

FUNDAMENTAL ELEMENTS OF FRAUD.

There is a general consensus amongst criminologists that fraud is caused by three basic elements called “WOE”- will, Opportunity and Exit i.e. the will to commit the fraud by the individual, the opportunity to execute from sanctions against successful or attempted fraud or deviant behavior.

Detective Egwu A.K. (2008:23) in his unpublished work- “MIS as a tool for fraud detection and control in Banks” listed the below as a prove and elements of fraud

(i.) There must be decent, though the motive is immaterial

(ii.) There must be damage to the person deceived, even where there is willful false representation before a course of action could arise.

(iii.) There must be a substance in which the fraud is based i.e. the object of the fraud e.g. cash, benefits, properties etc.

ORIGIN OF FRAUD

Karwai S.A(2002), maintained that it is very difficult to trace the origin of fraud. However, in the case of fraud perpetration, he cited Adewole (1990) who opined that “any minor mistake by an individual which is not detected in time or at all makes such an individual to think that the success of such mistakes may be taken advantage of and may proceed to enact more mistakes, this time deliberately so as to test the systems check and balance.

He stressed that where a deliberate mistake is made and is successful, the individual takes benefit of it for selfish end. He refers to this behaviour as fraud since it is now a deliberate action aimed at dishonestly enriching the individual who is definitely going to continue with such errors until he eventually graduate to a hardened fraudster.

It can be therefore, deduced that the genesis of fraud is traceable to the committal of minor undetected mistakes, which are consequently capitalized upon by individuals intending to defraud

Bright (1982), lamented that the cancer of fraud crept into the Nigerian banking industry right from its primordial days in 1892 and has remained there without any hope of elimination. Due to the above fact, certain statement of problems arises thus.

1.2     STATEMENT OF PROBLEMS

The sub-optimal performance of the Nigerian banking industry is due to an array of problems. Of these problems, the issue of frauds in our banks is one of the most intractable and monumental. The magnitude of fraud, its types, causes, preventive and control and its implications for the banking industry has inspired this research study.

Fraud is perpetrated in our banks in various forms. It cut across all sectors of the economy but more prevalent in banking sector and the size of an enterprise and the nature of business usually determine the size and degree of fraud perpetrated in it. The incidence of banks fraud has assumed an alarming degree in recent times, with little or no hope of stemming it completely. It can lead to huge financial losses to both banks and their customers, and of course grounding of a business set up in some cases.

Awareness should be created of which such problems as social, institutional and environmental factors as well as penalties for offenders play in perpetration of fraud in Nigerian banks. All manners/types of fraud, be it internal, external or mixed frauds as classified by (Wole Adewunmi (1986:2) could be prevented, controlled or reduced to the barest  minimum by the use of several measures among which are adoption of strategies that will block loopholes that encourage fraud, maintenance of good management control systems, very sound internal control measures among others.

1.3     OBJECTIVE OF THE STUDY

The broad and primary objective of this study is to find practical means of minimizing or eliminating the incidence of bank frauds in the banking sector. To achieve thus, the Following secondary objectives have been specified thus,

  1. To review existing literatures, collect and collate information on fraud in banks
  2. To identify the causes of fraud in banks

iii.      To identify the various types of fraud perpetrated in banks

  1. To highlight the various means employed in defrauding banks
  2. To identify various factors internal or external- that induce the perpetrators of fraud in banks
  3. To determine the magnitude and frequency of fraud in banks

vii.     To examine the impact or effects of fraud on banks

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